Company Law Board
Indian Overseas Bank vs Essar Machine Works Ltd. on 3 August, 2001
Equivalent citations: [2002]112COMPCAS557(CLB)
ORDER
1. These two petitions are filed by Indian Overseas Bank ('the bank') under Section 614(1) of the Companies Act, 1956 ('the Act') against Essar Machine Works Ltd. ('the company') and the Registrar of Companies seeking the following reliefs :
(a) to direct the company to sign Form Nos. 8 and 13 in respect of the charge created on 10-7-1997 for Rs. 5 lakhs as well as modification of the charge made on 21-7-1997 in respect of the enhancement of miscellaneous cash credit limit from Rs. 5 lakhs to Rs. 10 lakhs and forward copies of registered Form Nos. 8 and 13 in favour of the bank;
(b) to order cost against the company; and
(c) to direct the ROC to levy on the company and every officer in default maximum penalty as prescribed under Section 142 of the Act.
2. According to Shri S. Srinivasan, Practising Company Secretary and authorised representative of the bank, the bank had sanctioned a miscellaneous cash credit limit of Rs. 5 lakhs in consideration of which the company had created a charge on 10-7-1999 in favour of the bank in respect of the company's immovable properties by way of equitable mortgage by depositing the title deeds. The company ought to have filed the particulars of the charge in accordance with the provisions of Section 125 of the Act within 30 days after the date of its creation. In the meanwhile, the bank had enhanced the miscellaneous cash credit limit from Rs. 5 lakhs to Rs. 10 lakhs in favour of the company, in pursuance of which the latter created modification to the original charge on 21-7-1997 by way of extension of equitable mortgage in respect of the company's immovable properties. The company ought to have filed the particulars of the modification of the charge made on 21-7-1997 on or before 20-8-1997. In spite of repeated requests, the company had neither filed the particulars of the charge as well as the modification with the second respondent, nor signed Form Nos. 8 and 13 forwarded by bank. Consequently, the bank was constrained to send a notice of 27-3-2000 (Annexure-1 in C.P. Nos. 11 and 12 of 2001) in accordance with Section 614(1) calling upon the company to file Form Nos. 8 and 13 with the second respondent, but the company had failed to respond to the notice of the bank. Hence, the petition.
3. Shri V. Sundarakumar, advocate appearing for the company, while reiterating the averments made in the replies filed on behalf of the company has submitted that the petitioner cannot seek any of the remedies for the following among other reasons :
(a) The bank had not sanctioned any miscellaneous cash credit limit, but extended over draft facility through the current account maintained by the company.
(b) The bank had never issued any sanction letter for the over draft facility extended to the company. There was no stipulation of creating charge over the immovable properties belonging to the company. The bank cannot invoke the provisions of Section 614(1) for want of any stipulation for creation of charge on the immovable properties belonging to the company.
(c) The over draft facility extended to the company was not secured by mortgage of the immovable properties of the company. There was never an intention either oral or in writing between the bank and the company to create a charge by way of equitable mortgage by depositing the title deeds of the company's immovable properties.
(d) There is no statutory obligation on the part of the company to file any particulars of the charge with the second respondent, since no charge was created over the immovable properties of the company.
(e) The charge as well as modification of the charge was said to be made on 10-7-1997 and 21-7-1997 respectively, but the bank had approached the CLB after two years. The petition suffers from delay.
(f) The bank has already initiated recovery proceedings against the company under the provisions of Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, wherein the company is disputing the equitable mortgages said to have been created by the company in favour of the bank. The recovery proceedings are pending.
(g) The documents belatedly produced by the bank are concocted ones and cannot be enforced against the company.
(h) The company is restrained by an order of injunction from charging the properties at the instance of the bank, before Debt Recovery Tribunal.
4. The company in its reply statement urged that the sanction letter dated 9-7-1997 of the bank is not addressed to the company and that though the title deeds were deposited with the bank, there was no intention on the part of the company to create any charge on the properties belonging to the company. The company has narrated the circumstances under which the documents were deposited with the company, but without any intention to create a charge over the property as well as Form Nos. 8 and 13.
5. While the second respondent has no objection for granting the reliefs sought against the company, the prayer for levy of maximum penalty by the second respondent is resisted on the ground that the bank cannot seek such relief before the CLB.
6. After considering the pleadings and oral submissions made on behalf of the bank as well as the company and report of the ROC, the issue that arises for my consideration is whether the company should be directed to forward particulars of the charges created on 10-7-1997 and also modification of the charge made on 22-7-1997 to the second respondent for being entered in the register of charges of the company.
7. According to the bank, it had extended a miscellaneous cash credit limit of Rs. 5 lakhs on 10-7-1997 and a further cash credit limit of Rs. 5 lakhs on 21-7-1997, against the security of, inter alia, the immovable properties belonging to the company. It is contended by the bank that the company had deposited with the Bank at Chennai the title deeds relating to the property owned by the company, with an intent to create an equitable mortgage, as security for due repayment of the cash credit facility of Rs. 5 lakhs made on 10-7-1997 to the company. The deposit of title deeds was confirmed by the company in writing on 11-7-1997. Further the company by its letter dated 22-7-1997, confirmed that the titled deeds deposited on 10-7-1997 shall cover and extended to the total advances of Rs. 10 lakhs and other indebtedness. The company does admit the availment of credit limit of Rs. 10 lakhs from the bank, excepting the nomenclature of the loans, but unequivocally disputes that charge was created over its immovable properties to secure the credit facilities of Rs. 10 lakhs availed from the bank. According to the company, though the company had deposited the original title deeds on 21-7-1997 and confirmed the subsequent letter dated 22-7-1997 securing the credit limit of Rs. 10 lakhs, it stoutly denies that there was any intention to create charge over the company's immovable properties. It is contended by the company that the deposit of title deeds was done by the company on the clear understanding that the subject mentioned property was to be eventually sold or exchanged for the adjacent property which would be charged to the financial institutions. It is further contended that the company had already created a charge in favour of the financial institutions in December 1995 which was subsequently modified in May 1998, in support of which the company has produced copies of Form Nos. 8 and 13. At no point of time it was intended to create a charge by the company in favour of the bank. It was agreed to deposit the title deeds under the custody of the bank as a collateral on the understanding that the property in question was to be sold. Shri V. Sundarakumar relied on Annexure A1 to show that the letter dated 9-7-1997 sanctioning the loan is by the Regional Office of the Bank addressed to its Branch Manager. He further invited my attention to the fact that the bank did not produce copy of the sanction letter showing that the company had agreed to the terms and conditions of the sanction. Though the bank has produced the original documents of title at the time of hearing, it is the contention of the company that they were never delivered to the bank with intention to create charge over the property. Thus, while it is contended by the bank that the properties were charged in their favour, it is disputed by the company that it had never created charge over the properties. Admittedly, the bank had initiated recovery proceedings in July 1999 before the Debt Recovery Tribunal (DRT) under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, enforcing the mortgage and obtained an order of injunction restraining the company from charging, encumbering or otherwise dealing with the immovable properties being the subject-matter of both the petitions. Form Nos. 8 and f 3 was filed by the bank with the second respondent for the charge creation and for modification in September 1999. The present petitions were filed before the CLB in August 2000. The application filed by the bank before DRT is pending and the contentious issue in regard to creation of charge by the company in favour of the bank is being agitated before the DRT. Since the civil proceedings before the DRT are prior in time to the filing of these petitions before me, to avoid conflict of decisions. I am not inclined to adjudicate the issue in dispute. Moreover, this Bench will not go into the validity of mortgage in the present proceedings, as has been held in number of cases by the CLB. The bank is at liberty to pursue the proceedings before the DRT and as and when the disputed question of creation as well as modification of charge in favour of the bank is finally adjudicated, the bank is at liberty to approach the CLB for appropriate relief.
8. With the above directions, both the petitions stand disposed of.